This is a blog about the use of emerging technologies to boost the governance of public procurement. It used to be a blog on EU law, with a focus on free movement, public procurement and competition law issues (thus the long archive of entries about those topics). I use it to publish my thoughts and to test some ideas. All comments are personal and in no way bind any of the institutions to which I am affiliated and, particularly, the University of Bristol Law School. I hope to spur discussion and look forward to your feedback and participation.

It is interesting to stress the rationale given in recital (96) Dir 2014/24 for the adoption of life-cycle costing, which presents it as a particular methodology linked to the award of contracts under either the most cost effective (MCE) or the best price-quality ratio (BPQR) criterion in any cases where price is not the only consideration.

It should be taken into account that Dir 2014/24 allows Member States to prohibit or restrict the use of price only or cost only to assess the most economically advantageous tender (MEAT), where they deem this appropriate 'to encourage a greater quality orientation of public procurement' (rec (90) and art 67(2) in fine dir 2014/24). The PCR2015, however, have not included such a restriction and, consequently, contracting authorities in England and Wales can still opt for price-only award where they consider it a workable award criterion.

Generally, though, Dir 2014/24 is clear in stressing that 'except where it is assessed on the basis of price
only, contracting authorities can determine the most economically
advantageous tender and the lowest cost using a life-cycle costing
approach ... [which] includes all costs over the
life cycle of works, supplies or services.' This is reflected in reg.67(2) PCR2015, according to which the MEAT 'shall be identified on the basis of the price or cost, using a
cost-effectiveness approach, such as life-cycle costing'.

That general approach is fleshed out in reg.68(1) PCR2015, according to which contracting authorities can take into consideration the prices offered by tenderers and other costs included in the applicable life cycle costing methodology, if any, which would include both (a) costs borne by the contracting authority or other users such as costs relating to acquisition, costs of use, such as consumption of energy and other resources, maintenance costs, or end of life costs, such as collection and recycling costs; and (b) costs imputed to environmental externalities linked to the product, service or works during its life cycle. However, these externalities can only be taken into account if their monetary value can be determined and verified [reg.68(1)(b) PCR2015].

Such externality-related costs may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs [reg.68(2) PCR2015; for discussion, see D Dragos and B Neamtu, ‘Sustainable Public Procurement: Life-Cycle Costing in the New EU Directive Proposal’ (2013) European Procurement & Public Private Partnership Law Review 19–30. See also O Perera, B Morton and T Perfrement, Life Cycle Costing in Sustainable Public Procurement: A Question of Value (IISD Paper, 2009)].

Reg.68 PCR2015 then goes on to specify that the methods used for assessing
costs imputed to environmental externalities should be established in
advance in an objective and non-discriminatory manner and be accessible
to all interested parties. Such methods can be established at national,
regional or local level, but they should, to avoid distortions of
competition through tailor-made methodologies, remain general in the
sense that they should not be set up specifically for a particular
public procurement procedure [see rec (96) Dir 2014/24]. In the specific terms of reg.68(3)(a) PCR2015, the methods must be 'based on objectively verifiable and non-discriminatory criteria and, in particular, where [they have] not been established for repeated or continuous application, [they] shall not unduly favour or disadvantage certain economic operators'.

Common methodologies should be
developed at Union level for the calculation of life-cycle costs for
specific categories of supplies or services. Where such common
methodologies are developed, their use should be made compulsory [reg.68(5) PCR2015]. However, it is worth stressing that, to date, the only methodology developed at EU level affects vehicles (see Directive 2009/33/EC of the European Parliament and of the Council and additional information here).

Rec (96) Dir 2014/24 goes beyond reg.68 PCR2015 (and art 68 dir 2014/24) and expresses a political desideratum that, furthermore, the feasibility of
establishing a common methodology on social life cycle costing should be
examined, taking into account existing methodologies such as the
Guidelines for Social Life Cycle Assessment of Products adopted within
the framework of the United Nations Environment Programme.

What to make of this? Or, actually, what not to make of this...

In my view, the treatment of life-cycle costing must be distinguished in two parts. A relatively feasible part (which is desirable and should be promoted) and a science-fiction part (which is loaded with space for political and strategic behaviour and should be avoided).

The relatively feasible part concerns the costs actually borne by the contracting authority or third parties and is limited to the costs comprised by reg.68(1)(a) PCR2015, that is, costs relating to acquisition, costs of use, such as consumption of energy and other resources, maintenance costs, and end of life costs, such as collection and recycling costs.

This is life-cycle costing strictly speaking and it should be possible to develop costing models that are sufficiently simple and easy to apply so as to comply with the requirement of reg.68(3)(c) PCR2015--for some reason, not directly applicable to this specific bit of life-cycle costing (but an obvious implicit requirement in operative terms)--that 'the data required [must be susceptible of being] provided with reasonable effort by normally diligent economic operators, including economic operators from third countries'.

In contrast, the science-fiction part concerns the imputation of environmental externalities, given that they refer to costs not actually (directly) borne by any specific economic agent [or reversely, indirectly borne by us all, in the textbook example of the tragedy of the commons; see G Hardin, 'The Tragedy of the Commons' (1968) 162(3859) Science 1243-1248]. If read in its straightforward literal meaning, the provisions related to the calculation of costs covered by reg.68(1)(b) are dis-applied by the final caveat that 'costs imputed to environmental externalities linked to the product, service or works during its life cycle [can be taken into account]provided their monetary value can be determined and verified.'

As things stand today, and regardless of the well-intended promotion of studies and research in the environmental economics field, it is actually impossible to determine the monetary value of those externalities to any degree of predictability that could be operationalised in a well-functioning legal rule.

Any non-market based model is bound to be based on an enormous and vastly complicated set of assumptions that make its verification (as in reality check) impossible [see M Sagoff, 'The rise and fall of ecological economics. A cautionary tale' (2012) 2 Breakthrough Journal 45-58; and I Røpke, The emergence and current challenges of ecological economics (Inagural lecture, University of Aarhus)]. Environmental economists are confronted with a very notable set of difficulties when trying to price or monetize very significant elements of their models [for discussion, see the brief account of difficulties presented by SL Conner & MR Hyman, 'Adjusting prices for externalities' (2012) Readings and Cases in Sustainability Marketing: A Strategic Approach to Social Responsibility 1-25]. Consequently, the difficulties faced by this branch of economics makes it at least premature (if not reckless) to import their models and apply them in practice. Not to mention the complexity of using those models, which would in any case make it disproportionate for most contracting authorities to engage in this sort of complicated exercise for their regular purchases.

Equally, any market-based model is bound to fail [for thought-provoking discussion, see P Bond, ‘Climate’s value, prices and crises. Geopolitical limits to financialization’s ecological fix’ (2015) Leverhulme Centre for the Study of Value Working Paper Series No. 9], not least due to the lack of actual political will of the Member States to create a properly working European market for greenhouse emission rights trading, despite the repeated efforts of the European Union [as warned by even kind approaches to an assessment of its effectiveness; see T Laing, M Sato, M Grubb & C Comberti, ‘Assessing the effectiveness of the EU Emissions Trading Scheme’ (2013) Centre for Climate Change Economics and Policy Working Paper No. 126]. The hands-off approach adopted by the CJEU and its reluctance to twist the Member States' arms in this area definitely doesn't help.

Consequently, in my opinion, contracting authorities will be well advised to use only the life-cycle costing provisions related to costs actually borne by specific economic agents (either themselves or third parties) under reg.68(1)(a) PCR2015, and to leave overly-complicated and technically unsolved issues with the pricing of environmental externalities aside, regardless of the legally enabling nature of reg.68(1)(b) and (2) PCR2015.